Halfords Slumps as CEO McDonald Says Profits Will Have to Waitby
U.K. retailer to step up investment in information systems
Shares fall most since May 2013 as cycling sales slump
Halfords Group Plc shares slumped as the U.K. bikes and car parts retailer said the cost of a turnaround plan will lead to a pause in profit growth next year.
The stock fell as much as 11 percent, the biggest drop since May 2013, after new Chief Executive Officer Jill McDonald unveiled plans to step up investment in back-office information systems. She’s seeking to stave off stiff competition in cycling, where sales tumbled in the second quarter of the financial year.
The forecast of unchanged earnings in the year through March unnerved analysts, who on average were expecting pretax profit to grow by 7.6 percent next year, according to data compiled by Bloomberg. The fresh wave of investments may test the patience of investors, after they were asked to forgo short-term gains under the company’s previous three-year strategy.
“While we understand that management wants to invest for the long-term here, the expected short- and medium-term sales response is uninspiring,” Jonathan Pritchard, an analyst at Peel Hunt, said in a note. “We are not convinced that today’s forecast cuts are the last.”
Halfords shares fell 8.7 percent to 392.5 pence at 10 a.m. in London, extending their decline for the year to 16 percent.
McDonald, hired in March from fast-food chain McDonald’s Corp., plans to step up spending on inventory management systems and on collecting and analyzing customer data.
“We remain to be persuaded that the investments in data analytics will pay off,” David Stoddart, an analyst with Edison Investment Research, said by e-mail.
The profit squeeze will be exacerbated by an additional cost of as much as 2 million pounds ($3 million) due to the U.K.’s new minimum wage requirement next year, the company said. That may rise to 6 million pounds a year by 2020.
As a sweetener, Halfords is aiming to grow its dividend every year, McDonald said. The first-half payout was raised 2.9 percent to 5.66 pence a share.
“We might be taking a pause in profit growth next year, but we aren’t expecting investors to take a pause as well," she said.
First-half pretax profit fell 5.9 percent to 46.4 million pounds, before non-recurring items, the retailer said. Cycling sales declined 7.6 percent in the second quarter on a like-for-like basis, more than erasing the first-quarter’s 2 percent gain. The slump was caused by wet weather and increased levels of discounting.